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Yum China severs ties with owner of plant in meat scandal

By Lisa Baertlein

(Reuters) - Yum Brands Inc's China division has stopped buying from OSI China after Shanghai police detained five people connected to the meat supplier's factory at the center of a new food safety scandal, Yum said on Wednesday.

"Yum China has decided to immediately terminate all procurement from OSI China," including Shanghai Husi Food Co Ltd, Yum said in a statement.

China is the No. 1 market for Yum, whose nearly 6,400 restaurants in the country are mostly KFC outlets.

Yum's China restaurants, which also include Pizza Hut, have arranged alternative suppliers and the company said it did not expect any disruptions to its KFC business.

OSI is not a major supplier to Yum China, the company said.

OSI China and its Shanghai Husi business are part of Aurora, Illinois-based OSI Group LLC, which was not immediately available to comment.

The five people detained include the head of Shanghai Husi and its quality manager, police said in a statement.

Shanghai Husi on Sunday was the subject of a Chinese TV expose that showed staff at the plant using expired meat and picking up meat from the floor to add to product mixes.

Before the five individuals were taken into custody, the official Xinhua news agency cited the Shanghai food and drug watchdog as saying that food safety violations at Shanghai Husi were company-led rather than the acts of individuals.

Yum said in its statement: "It is difficult to believe and completely unacceptable that the management of Shanghai Husi, a division of OSI, would oversee and organize illegal and dishonest operations."

Shares of Yum were up 0.3 percent at $75.09 in afternoon trading on the New York Stock Exchange.

Yum, McDonald's Corp and Starbucks Corp are among the global brands that have pulled products from their outlets after it emerged that Shanghai Husi supplied expired meat to clients in China, as well as in Japan, in the latest in a series of food safety scandals.

(Reporting by Lisa Baertlein in Los Angeles; Editing by Jeffrey Benkoe, Lisa Von Ahn and Dan Grebler)